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Prime Minister's Office

Policy Statement 2003

October 2 2003

OCTOBER 2, 2003

Mr. Speaker of the House

Parliament convened for a short session this spring, as is mandatory after a general election, and the Government's policy statement was announced and debated then. This autumn and those to come, the details of that accord will be clarified in the Prime Minister's annual policy statement to parliament and in the list of bills that individual cabinet ministers intend to present for debate during the following winter.

Many people were surprised that tax reductions were the single issue on which political parties, with some exceptions of course, were in closest agreement in the recent election campaign. Naturally the parties differed in their approaches to the aim of cutting taxes, but in the final analysis most of them seemed to consider that the economy had been performing so well recently that during the coming term of office there would be scope for granting tax reductions. The very firmly worded section in the Government's policy statement on this issue should therefore be welcomed. The national budget that I have presented to parliament reiterates this policy, emphasising that ISK 20 billion will be allocated towards lowering taxes during the present term of office. This figure is not specified further at the moment, since details of individual changes remain to be decided and national wage settlements have not been made. Both the Minister of Finance and I have stated our view that the high-income tax surcharge will automatically cease to be law at the end of this year. Nonetheless, the coalition parties have decided to extend this tax, but to reduce it in phases, and their agreement on how to abolish it altogether will be ratified by law.

It seems obvious that the economy will be show fluctuations during the coming term and the Government's policies will reflect this. Efforts will be made to maintain a fairly tight fiscal stance when the expansionary effects of construction projects for power-intensive industrial projects are at their peak. Thus it is aimed to ensure a fiscal surplus in 2005 and 2006, as well as next year. As a proportion of GDP, Treasury debt will therefore go on decreasing over this period. In this respect, Iceland seems to be much more successful in its economic policy implementation than other countries where agreed rules on fiscal deficits are grossly violated time and again.

In 2007 the fiscal stance will be eased slightly to soften the landing when the power-intensive industrial development programme comes to an end.

I would now like, Mr. Speaker, to address a number of policy issues at individual ministries:

The Government's policy statement says that one priority will be the security of Icelandic citizens. In this area the state has great duties to perform and needs to pay heed to all possible upsets to this security. The police, Coast Guard and Civil Defence Authority play a key role in implementing government policy in this field and a realistic approach is vital to create the operating conditions they need. The Minister of Justice has announced that he wants to promote a reorganisation of police jurisdictions and in-house procedures without reducing the number of sheriffs. Work at the Icelandic Coast Guard needs to be adapted to meet new demands, with construction of a new coastguard patrol vessel and the renewal of its air fleet. Executive management of the Civil Defence Authority was reorganised during the last parliament and further reforms will be made to its command systems, contingencies and risk assessments.

Another main aim outlined in the policy statement is ongoing housing market reforms in line with the objectives set for the Housing Financing Fund. The mortgage ceiling for ordinary housing will be raised in stages during the Government's term of office to as much as 90% of the value of the property, up to a certain limit. The market for rental accommodation will be invigorated.

A project manager and three-man team of advisors from the Ministries of Social Affairs, Commerce and Finance are now formulating proposals for how to arrange 90% mortgages. Close consultation is being maintained with the main stakeholders.

The Minister of Social Affairs underlines that these reforms will be designed to meet the public's demands while at the same time ensuring that neither economic stability in general nor the housing market in particular will be jeopardised.

The Minister of Health and Social Security has advocated exploring the benefits of transferring important health service projects to municipal authorities. Healthcare centres and services for the elderly should come under particular focus. The aims would be to move health service management close to the people, make it more transparent and at the same time enable users of these services to exert greater democratic control over them. The towns of Akureyri and Hornarfjörður have run their own healthcare centres and services for the elderly for some years now with good results.

New electricity legislation was passed during the last parliament, entailing substantial changes in the electricity operating framework in Iceland. During the coming session of parliament it is planned to present bills on research into and utilisation of earth resources, on water resources and on heating utilities, whose activities are currently not covered by a comprehensive package of legislation.

One distinctive feature of Iceland is that it has by far the highest use of renewable energy resources anywhere in the world, at 72%. This has prompted widespread outside interest in Icelandic energy, as have the Government's plans to produce pollution-free hydrogen fuel.

In recent years the Government has supported the development towards a sustainable hydrogen fuel community in Iceland and the nation has been recognised as a pioneer in this field. The Government's policy statement outlines the aim of embarking on new phases in the use of hydrogen fuel, in order to base energy consumption even further on renewable resources.

The business operating environment in Iceland has improved substantially in recent years, which is crucial in a climate of growing global competition. Intense work has been devoted to promoting Iceland as an investment option. A particular focus has been to attract investors who could take advantage of the country's energy resources. The point has now been reached where, within a few years, Iceland will rank with the leading aluminium manufacturers in Europe. Increased aluminium production has already created opportunities in other industries. One example is a feasibility study for an anode plant in Hvalfjörður, which would create 140 jobs. This investment is estimated at ISK 17 billion. Talks are also in progress on the possibility of constructing a capacitor foil factory. Japanese investors have been fact-finding about Iceland and the embassy in Japan has promoted the project along with the Energy Marketing Office. Such activities would call for around 50 jobs. Furthermore, a final decision by US investors is now awaited on construction of a steel piping plant at Helguvík. All the agreements involving public authorities in Iceland have been concluded. This project would create some 200 jobs.

The Government also intends to present a bill on foreign investment to this parliament, reflecting the changes that have taken place in both the external and internal investment environments since current legislation was passed. This bill will not provide for changes regarding foreign ownership in the fisheries sector.

The Government underlines the need to increase the adaptability of Icelandic agriculture and strengthen its competitive position, while at the same time meeting consumer requirements for pure and wholesome agricultural products.

Greater emphasis will be given to the multiple role that agriculture plays in Icelandic society and its value for the regional communities and population. The Minister of Agriculture has been taking measures to heighten the profile of environmental values in farming in the future. Participation by farmers in forestation and land reclamation work has been significantly stepped up.

Despite certain problems in the sector recently there is every reason to remain confident about Icelandic agriculture and its qualities. Flexibility definitely needs to be increased in the agricultural sector. Priority issues must be education, development and research in the sector, stepping up innovation in new branches of agriculture and taking advantage of opportunities in existing ones.

A solid educational system is the foundation for moving on towards higher living standards. Our good scores in international comparisons confirms that investment in education yields ample and secure returns. Iceland allocates 6.3% of GDP to education, a much higher figure than the OECD average, and this proportion is steadily increasing. In 1990 we were some way below the OECD average, but today we rank with the nations that contribute the most towards this field. This is a welcome development.

Fresh winds have been blowing through the Icelandic school system in recent years and a strong desire to make greater advances is noticeable now. In the space of only twelve years the number of university students has almost tripled. The number of higher secondary school students has also grown by leaps and bounds, and 93% of young people now choose to continue studying after completing their mandatory education.

In the beginning of this week the Minister of Education put forward ideas for a fundamental reform to the Icelandic education system. After years of preparation, the time has come to decide whether and how the secondary school level can be reduced from four to three years of study. It is important to make such a change in close consultation with teachers, parents and students.

Since February 11, when the Government decided to allocate ISK 1 billion towards the construction of cultural centres in Akureyri and the Westman Islands, preparations for these projects have been under way and making good progress. Agreements have been concluded with Ísafjörður town council on the state's involvement in setting up a cultural centre there. Building of cultural centres lays the foundation for more dynamic and flourishing cultural activities in regional Iceland.

The establishment of the Science and Technology Council earlier this year represented a major step towards coordinating official policy on science, technology and innovation and linking it more effectively to research and development which is being undertaken in the business sector.

The Government's draft budget provides for a substantial increase in funding in this area immediately next year and during its term of office the Government also aims to double its contributions to funds which award grants on a competitive basis.

In recent years the Ministry of Communications has prioritised safety at sea in a joint effort with seamen and vessel operators. This policy will continue. Privatisation of vessel inspections in Iceland constitutes part of this policy, but will be based on the condition that demands will not be relaxed in any respect and will be consistent with a long-term marine safety strategy.

As most people know, the road network has been developed enormously over the past 12 years. Roadbuilding has never been undertaken on such a scale before and during the current term of office it will be stepped up still further. A special effort will also be devoted to making dangerous sections of the national road network safer and improving road signs nationwide.

Experience has shown that it was a sensible decision to postpone the privatisation of Iceland Telecom. Finance market conditions for telecommunications companies have now improved and it is hoped that Iceland Telecom can be sold during the present term of office. In order to spur the travel industry at a sensitive time, the Minister of Communications arranged a major increase in funding for marketing and Iceland promotions, in close collaboration with stakeholders in the sector. The measures taken have produced good results. It has been decided to maintain powerful promotions of Iceland with the main aim of boosting growth and consolidating the foundations of the Icelandic economy by penetrating new travel industry markets such as Japan, alongside marketing activities in Europe and North America.

Reforms to fisheries management legislation will be launched to enable the introduction of fishing licence fees on September 1, 2004. Work on another legislative reform will make it possible to introduce quota concessions for longliners next year. The commencement of scientific whaling met less opposition from other countries than had been predicted. However, this is a very sensitive issue, and a cautious and considerate approach will be needed when the next step in scientific whaling is taken.

Environmental issues will have a strong profile in parliament in the coming period. The Minister for the Environment will present parliament with a proposal for a five-year nature conservation programme, the first of its kind.

A review of the law on environmental impact assessment is under preparation aimed at bringing Icelandic legislation into line with that in neighbouring countries.

It is hoped to found a national park – the largest in Europe – in the Vatnajökull glacier area shortly, and a separate committee is considering the establishment of a nature reserve north of the glacier in connection with it.

During the coming session, parliament will consider treaties for the enlargement of both NATO and the European Economic Area. Ratification of these treaties will give Central and Eastern European countries the opportunity to take part in the successful security and defence cooperation from which Iceland has benefited, and in harmonising business operating conditions and opening markets. This will mark an end to the divisions which have split Europe for decades.

As the Government has decided and the Minister for Foreign Affairs has informed the United Nations, Iceland will seek election to a UN Security Council seat for the period 2009-2010. All the Nordic countries support this candidacy. This is one of the largest projects that Iceland's Ministry for Foreign Affairs has ever embarked upon.

In 1997 the Government decided to step up development aid over the period from then until this year. A target was set for increasing development aid contributions from 0.10% of GDP to 0.15% in 2003. This target has been attained and even exceeded. The next task is to explore the best way to increase Iceland's share even further and how Iceland's contribution can be made most useful in both bilateral and multilateral aid programmes. The Icelandic International Development Agency and United Nations University colleges in Iceland have produced considerable results and stepped-up peace-keeping operations have enhanced the country's reputation in the international arena.

Iceland's defence arrangements and relations with the US were in the spotlight this summer. In my mind it has been clear, ever since the Keflavík base was scaled down after the Cold War, that defence cooperation with the US could only maintain its value by serving the security interests of both nations. This would mean that Iceland, just like other countries, would need to have minimum defence capability against conceivable new threats.

In the beginning of May the United States' Ambassador came to meet me with what was called "a message from Washington", stating that it had been decided, in effect, to dismantle Iceland's air defences. Following correspondence between the President of the United States and myself, talks with his national security advisor and direct intervention by the President himself, the defence issue is being handled in the right manner. This means that they will be resolved jointly and not decided unilaterally, which would have destroyed the foundation on which the Defence Agreement is based. There was clearly no desire to do that at the highest level in Washington, given the cooperation and mutual trust prevailing for many decades between Iceland and the US on defence and security issues.

The decision this spring to align Iceland with the more than thirty countries that formed the coalition in the Iraq War was based on clear premisses. Saddam Hussein's regime was a threat to peace and stability in the world and for more than a decade had ignored UN resolutions and demands to disarm. It was impossible to wait while that regime became capable of being even more dangerous than before. The Iraq War, which was sanctioned in this way by the United Nations, prevented this situation from arising and liberated the Iraqi people from Saddam Hussein and his henchmen. Work is now under way to put the nation back on its feet after all that it suffered under tyrannical rule. Everyone who desires peace in that part of the world can surely only support such a policy wholeheartedly. Iceland has already made a contribution towards the rebuilding of Iraq and will continue to do so.

For a while last winter a period of very strained relations with the European Union seemed to be looming. The difficulties arose in negotiations between the EFTA states and the EU Commission on the latter's enlargement to the east and the consequent enlargement of the European Economic Area. In particular they were prompted by the Commission's demand for an exponential increase in contributions by the EFTA countries to EU structural funds, which provide grants to the poorer members of the Community.

This dispute was resolved after the Commission made major concessions from its original demands, which in the event did not enjoy the general support of EU member countries. In my view this demonstrates a strong political will within the EU for the EEA Agreement to continue to function effectively.

In the beginning of this year I proposed setting up an all-party committee for professional discussion of important European questions, in response to requests for informed debate on these issues. It did not prove possible to set up the committee before the general election. There are normal explanations for this, and the aim is now to establish such a committee. In particular, the committee will seek to focus and sharpen this dialogue, identify the core issues and the main facts. Issues addressed will include implementation of the EEA Agreement, whether permanent exemptions are granted in negotiations on membership and, if so, what kind of exemptions, the short-term and long-term cost to the Treasury of EU membership, the pros and cons of the euro for Iceland, and so forth, to name just a few of the questions.

Mr. Speaker,

The Government coalition parties have agreed that on September 15, 2004 the Honourable Minister for Foreign Affairs will assume the office of Prime Minister, and the Ministry for Foreign Affairs and the Ministry for the Environment will be transferred to the charge of the Independence Party. And my 17th policy statement since spring 1991 which I have just delivered will therefore be my last, during this phase.

Every single time that I have delivered my policy statement, one honourable member of the opposition has remarked that unfortunately he is forced to admit it was one of the "skinniest" policy statements he has ever heard! I hope that the honourable member will not decide to abandon this habit now, because I cannot deny that such steadfastness and conservatism strikes a sensitive chord in my heart.

Ladies and Gentlemen. For all our disagreements and differences, parliament in its entirety hopes that the session now beginning will enhance the reputation and well-being of our country and our nation.

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